Why is the IRB urged to adopt the Refund First Audit Later policy?

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The Inland Revenue Board (IRB) is urged to adopt the Refund First Audit Later (ReFAL) policy to expedite tax refunds and avoid incurring compensation payments for delayed repayments.

The Inland Revenue Board (IRB) has been advised to fully implement the Refund First Audit Later (ReFAL) concept to ensure tax refunds are processed within stipulated timeframes. This policy shift aims to prevent the accumulation of compensation payments due to delays, as mandated by Section 111D of the Income Tax Act. The Auditor General's Report highlighted significant arrears in tax refunds, underscoring the need for a more efficient system.
Expedited Tax Refunds and Compliance

The core principle of the ReFAL policy is to allow income tax payments to be processed first, with subsequent audits conducted later. This streamlined approach is designed to facilitate the timely disbursement of tax refunds to eligible taxpayers. By adhering to this process, the IRB can ensure that refunds are issued within a defined period, thereby enhancing taxpayer satisfaction and maintaining compliance with financial regulations.
Avoidance of Compensation Arrears

A key driver for adopting ReFAL is the avoidance of compensation payments for delayed tax refunds. As of December 31, 2019, the IRB faced a tax repayment commitment totaling RM10.851 billion, affecting 1.26 million taxpayers. A substantial portion, RM3.807 billion (35.1%), represented arrears from the year of assessment 2017 and previous years. The failure to fully implement ReFAL has led to the IRB incurring RM38.29 million in compensation for delayed repayments between YA 2013 and 2019, a figure projected to rise if the issue persists.
Addressing Significant Arrears

The Auditor General's Report (LKAN) 2019 Series 1 specifically recommended that the IRB ensure the full utilisation of government allocations for tax refunds for YA 2017 and prior years. The report identified that RM7.044 billion (64.9%) of the total outstanding refunds at the end of 2019 were for YA 2018 and YA 2019. This points to a systemic issue in processing refunds, which the ReFAL policy is intended to address by prioritising the disbursement of funds.
Establishment of the Tax Repayment Fund

The mechanism for managing tax refunds, the Tax Repayment Fund (TBBC), has been in place since 2005. This fund consolidates tax surpluses collected under various acts, including the Income Tax Act 1967, the Petroleum (Income Tax) Act 1967, the Real Property Gains Tax Act 1976, and the Stamp Act 1949. While the fund exists, its effectiveness in managing timely refunds has been challenged by the arrears highlighted in the audit, further emphasizing the need for the ReFAL policy's adoption.

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Why is the IRB urged to adopt the Refund First Audit Later policy?

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